Borrowing for college: The new angst

It’s now impossible to talk about college without venting about skyrocketing costs and suffocating debt. College tuition and fees have increased by 538 percent since the 1980s, more than three times faster than average family income and almost twice as fast as health-care costs. Americans now owe more than $1 trillion in student loan debt. So it is only reasonable that prospective college students and their families fret about how they are going to pay for college.

Rather than buying into the notion that college may not be worth it – increasingly touted by well-educated, affluent individuals who most certainly will send, or already have sent, their kids to college – students and families should look for ways to maximize their odds of success while minimizing the risks.

After all, the value of a college degree is unquestionable. On average, an American holding a four-year degree can expect to make about $1 million more over his lifetime than one holding only a high school diploma. For African-Americans, a bachelor’s degree eliminates the difference in economic mobility that separates them from their white peers.

Bachelor’s degree holders also tend to be healthier, live longer, volunteer in their communities and contribute more to the country’s economic competitiveness. In fact, the value of college credentials is the driving force of our nation’s quest to once again become the best-educated country in the world.

So how can prospective students optimize success and mitigate risks?

First, students must understand their chances for success. Only about six of every 10 people who start at a four-year college earn a degree within six years. The results are far worse at two-year and for-profit colleges. However, schools that have similar student characteristics, similar resources and similar missions can have wildly different results. As it turns out, what colleges do to support the academic success of their students matters, a lot. This includes summer bridge programs, first-year experiences, learning communities, and a focus on effective teaching methods. Tools like College Results Online can help prospective students find the places where they have the best chance to succeed.

Second, students need to know the real “net cost” of college. Almost no one has to pay a college’s tuition “sticker price.” But as with graduation rates, there are some institutions that do a much better job than others at providing students struggling to pay for college with the levels of financial aid they need to keep their net cost affordable.

Third, students need to understand how much debt they should expect to accumulate and the odds that they will be able to get the kind of job that allows them to pay back those loans once they graduate. It turns out, that depends largely on the type of school they attend. Median debt among bachelor’s recipients from public colleges is about $8,000, compared with $17,000 at private nonprofits and a staggering $31,000 at for-profit colleges. These debt burdens translate to monthly payments of up to $357 per month over a 10-year period. So when you combine low success rates with high debt at for-profit colleges, it’s no wonder many of their students struggle to pay off their loans, which cannot be discharged by bankruptcy.